IRS Goes After Tax Shelter Promoters

by Mike Godfrey, for LawAndTax-News.com, Washington

22 July 2003

The US Internal Revenue Service (IRS) has recently stepped up its campaign against tax sheltering arrangements and the promoters of such schemes, issuing new registration, reporting, and list maintenance rules for financial service providers.

Under the terms of the new registration rules, advisers are obliged to report to the IRS any tax minimization products and services offered which the tax agency has dubbed 'abusive tax shelters'.

The reporting rules require tax professionals to file a Reportable Transaction Disclosure Statement 8886 with clients' tax returns for each year that they have participated in the tax sheltering arrangement, and with the Office of Tax Shelter Analysis for their first year of involvement in the scheme.

The new list maintenance rules require that tax advisers maintain lists of participants in so-called abusive tax shelters for possible future inspection by the tax authority.

Speaking to the LMG news service on the implications of the new rules late last week, Michael Salzman, head of White & Case's New York tax controversy practice, observed that:

'The IRS has had some difficulty in articulating the exact type of tax shelters they want to eliminate,' but added:

'All tax professionals are now much more wary of getting involved in something that might be considered an abusive tax shelter and firms are focusing largely on internal compliance with the new regulations.'

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